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Does Settlement In Multi-Party Actions Protect Against Costs?

Thursday, 8 January 2015

A recent Court of Appeal judgment has highlighted the complexities surrounding settlement arrangements in multi-party actions, especially where one party continues to trial. In Dufoo v Tolaini and others [2014], all claimants were ordered to contribute to costs, despite two having reached settlement with the defendant before the case went to trial.

Background

The three claimants parted ways shortly before the matter came to trial. Two claimants entered into an agreement with the defendant, as part of which it was agreed that he would not seek costs from them. The third claimant, Mr Dufoo, proceeded to trial and was unsuccessful. The trial judge ordered that Mr Dufoo pay 80 per cent of the defendant’s costs. No order for costs was made against the other two claimants.

The appeal lodged by Mr Dufoo

Mr Dufoo appealed on two grounds. The first related to loan terms. Jackson LJ in the Court of appeal determined that both parties had had a measure of success and accordingly it was correct that each party should pay their own costs. The second point related to the apportionment of the defendant’s costs. Mr Dufoo argued that the trial judge should have ordered that the other two claimants bear a portion of the costs for which the third claimant was liable, as up until the settlement all three were advancing “substantially overlapping claims”.

Reasoning for imposing costs on all claimants

Jackson LJ in the Court of Appeal discussed the public policy benefit in encouraging settlements and the wide discretion awarded to trial judges in determining the issue of costs. He said this was a difficult issue but concluded with regret that the settlement agreement between the two claimants and the defendant was not a valid basis for holding that they should not contribute to the costs borne by Mr Dufoo. The settlement was only part of the surrounding circumstances that should have been taken into account.

Starting point for determining costs

He discussed how the proper starting point should be that “where different parties advance the same unsuccessful case against their common adversary...they should all contribute to the recoverable costs of the successful party”. He accepted that when the settlement was made, the cases of the three claimants were no longer mutually supportive. He was of the opinion that the trial judge had erred in determining that the settlement agreement was a good reason to move away from this starting position. As the case was largely unsuccessful, all three parties should contribute to the costs relating to the time when they were essentially advancing the same claim.

Conclusion

This case raises some interesting issues regarding settlement in multi-party actions and illustrates that a settlement arrangement will not necessarily protect claimants from being made liable for costs when the other party continues to trial and loses. For specialist commercial litigation advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.

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